Inventors beware of rogue investors

Published on Thursday, 25 November 2010 09:56

By Chuck Rizzo

In the first of his columns for budding inventors Chuck Rizzo, CEO of Take Me National LLC, explains the pitfalls of seeking capital from rogue investors.

Over the last 25 years, many inventors were preyed upon by companies who were seeking to capitalise on the emotional attachment that they had for their product ideas. These companies used deceptive tactics to entice inventors to spend thousands of dollars to develop their ideas, with the hope that they would be submitted to manufacturers for lucrative licensing deals.

At first, it may seem like a sensible way for inventors to bring new ideas to market. However, the deception came when these companies began to lead almost every inventor into believing that their particular idea was unique, extremely marketable and in need of fast action in order to capitalise upon the opportunity. This sales tactic was used on everyone, regardless of how unmarketable their idea was. After years of complaints to the Better Business Bureau and the US Patent Office, the United States Congress stepped in and passed new legislation to help protect the interests of inventors.

The American Inventors Protection Act of 1999

This legislation now requires companies to disclose the number of inventions they have evaluated over the last five years. Of those evaluations, how many inventors engaged that company’s services? They also had to disclose how many inventors ever received a license agreement, and how many ever saw a profit over and above what they paid to develop the idea.

Who Can You Trust?

Unfortunately, while this new legislation helped to tighten the rules, it did not necessarily solve the problem. The fact is that these companies continue to operate within the industry. They simply made a few adjustments in the phrasing of their sales presentations, and have creatively positioned these new disclosures on their website and marketing materials.

You must find an independent company that can first provide you with a professional market analysis of the marketability of your product idea. They should be reviewing both the idea, as well as the competitive markets you would hope to target. Make sure that the company you select, provides you with a Confidentiality Agreement prior to the market analysis engagement.